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Do Individual Investors Cause Post-Earnings Announcement Drift? Direct Evidence from Personal Trades
David A. Hirshleifer University of California, Irvine - Paul Merage School of Business James N. Myers University of Arkansas Linda A. Myers University of Arkansas Siew Hong Teoh University of California - Paul Merage School of Business October 2007 Abstract: This study tests whether naïve trading by individual investors, or some sub-category of individual investors, causes post-earnings announcement drift (PEAD). Inconsistent with the individual trading hypothesis, individual investor trading fails to subsume any of the power of extreme earnings surprises to predict future abnormal returns. Moreover, individuals are significant net buyers after both negative and positive extreme earnings surprises, consistent with an attention effect, but not with their trades causing PEAD. Finally, we find no indication that trading by individuals explains the concentration of drift at subsequent earnings announcement dates.
Keywords: earnings anomalies, post-earnings announcement drift, market efficiency, trading activity, individual investors, investor sophistication JEL Classifications: G14, M41 Working Paper SeriesDate posted: November 23, 2003 ; Last revised: April 15, 2008Suggested CitationContact Information
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